Management Decision Making (MDM) Assignment

Management Decision Making (MDM) Assignment

Executive summary

In this report, discussions have been made on the company named UK Manufacturing, plc, Simon Smith is director of this company. In this report impact of COVID 19 is provided on management decision making process and the fault of the UKM senior management is also discussed. Cost drop reason of SPx512 is also mentioned after reflecting the ABC review. Impact of using full utilization approach to product costing and manufacturing cost is also discussed. Drivers of manufacturing cost and product cost, about wafer fabrication and Simons fault is also mentioned. Pricing advantages of Competitors’, top communicating plc of UKM is also discussed in this project about wafer manufacturing.

The impact of COVID 19 on the management decision-making process

Simon Smith is director of an operation in UK manufacturing, plc, which is a semiconductor design and manufacturing company of advanced hardware systems. In the year 2017 and 2018, UKM has sold a product named SPx512 to AHS, which is a ’10-nanosecond microprocessor’ (Vogel and Lasch, 2016). Previously SPx512 was sold at full cost to AHS, however later for competitive business development, it changed all planning of the business unit and converted it into a profit centre. After changing all its business strategy, UKM felt to cooperate with repeatedly changing market policy as it needed flexibility and independence. After this change, they made a business strategy in which they could only sell products to external companies at available manufacturing cost.

In this COVID 19 situation, manufacturing companies face a considerable loss, mainly those who only depend on workers. Before COVID 19 companies marked a price for their products, but after this situation, the financial condition of the organization goes down. Customers who wanted to buy something from a manufacturing company, they could not pay full amount for purchasing their product for that UKM faced colossal loss as they marked their profit previously. Leadership of UKM is also affected due to their wrong decision-making process as senior management or leaders of the team only know how to handle a project, their requirements and ways of communicating effectively (Vanchan et al. 2018).

UKM gave all duties only to leaders, so after the corona virus outbreak, many of them were affected, and they did not attend office. Team members of the manufacturing team were unknown to their projects, and they failed to solve the product requirements as they were unfamiliar with the details of the product in this way UKM stuck with a loss.  As the situation was uncertain in that condition, they took the wrong decision, and somehow they implemented their manufacturing plan for the product and for that result were not right and other companies declined to purchase their products.

After this matter, they thought to reduce the cost of the product; in this case; also, they incurred massive loss as they provided costly components for making products. Though other companies purchased their products, however, they could not reach their destiny price, and Simon got hopeless for their business strategy. UKM again thought to try something different for that they recruited huge people to solve their problem, but due to repeated loss, they lost their stakeholder and retailers (Polenghi et al. 2019).

Reason for dropping the price of SPx512 after releasing ABC review in 2019

Many companies have used ABC to draw an outline to get more profit by deciding that the product or customers have to cut or keep. ABC review shows a technique based on account to show how much money a company can invest in a product and the amount of lasing and making a profit. The aim of “Activity-Based-Costing” (ABC) on the manufacture of the production of a company to allocate the actual producing cost and losing amount which helps it for further planning (Alefari et al. 2018). ‘UK Manufacturing (UKM)’, a semiconductor design and manufacturing company which is controlled by the “Advancing Hardware System” (AHS) has taken a leading position in producing the client or server system, workstations, and personal computers, and so on during 2017 and 2018.

AHS a single product- “the Server Processor (SPx512) a 512 MHz”, 10 nanosecond microprocessor is manufactured by UKM in 2019, and e SPx512 is the most useful micro device used in AHS’s servers and workstations. At first, the SPx512 had been sold at full cost but after releasing the report of ABC, Sarah Ahmads, and head of the UKM’s decision to drop the price of the product. Realizing that the performance and the price of microprocessors became halves every 1.5 years, many other companies and merchant semiconductors started to offer a decrease in their price every 1.5 years (Altman et al.  2017). Sarah believed that the product will be sold if the price of the product changes time by time and that it will remain profitable to UKM as they think. Sarah computed the required price deduction on the SPx512 following the model of industrial business. The price of SPx512 would continue at £850 and then drop to £637.50 to remain in the competition and be available in the market. Sarah was more troubled when AHS requested 150000 units in FY2019 but in 2020 the number is decreased by 75000 (Choudhary, et al. 2019).

Thousands of other companies have adopted the facilities of ABC and for this reason, the product cost is reduced. UKM has also applied the same ways to be stable in the market by measuring the strategies and annual performance of the particular product. The changing of the strategy by reducing the price of SPx512 produces a huge possibility in selling their device to extreme customers using available manufacturing capacity. As per the discussion, for this reason, UKM established the competitive market-selling price of SPx512 as much the company can be based on industry price or performance comparisons and the spending is decreased (Dey et al. 2018).

Product costing versus applying manufacturing cost

“Product and manufacturing cost” both are necessary for making a successful product and making a good profit for the organization. Product cost depends on all the factors such as from raw material cost to external labour cost. On the other hand, manufacturing cost only includes the cost of raw materials to build the product. Product cost also includes rent of the building, budget of advertising, and other business equipment and other products which are not considered for manufacturing purpose. If anyone has the ideal production capacity, then the investment on equipment and in facilities will not generate any income and will reduce whole profit, and additional value of production decreases fixed cost.

Product cost refers to the expenses which are associated with a company and related to the business; this is also associated with the manufacturing costs of the product. Manufacturing cost is the cost in the sum of all expenses in the time of making the product (Nduka, 2018). There are three categories in manufacturing cost like the direct materials cost which means the cost to collect the materials from the market. Secondly, the labour cost which is directly paid by the company to the labourers. Thirdly the manufacturing cost is the most vital cost of all which is paid by a company for the final release.

If there is no proper planning, then recompense, peak utilization can destroy profitability and product quality. In order to get a successful product company needs to reach comprehensive capacity utilization and needs to get high profit and a smooth manufacturing factory that converts to good-quality products. For utilizing manufacturing cost, a company needs to maintain some strategy through which an estimated cost can be the same as factories actual cost. Companies should allocate some expected cost for a single unit manufacturing which must match the manufactured product cost.

Drivers of manufacturing cost and product cost

Manufacturing Cost

Manufacturing cost is defined as which is associated with cost of materials, cost of labors and build cost.  It depends on the quantity of purchasing components, the engineer’s decision, production planning so on. In order to make a profit, it is necessary to make a design on manufacturing cost, because after making any product it is necessary to look if the product meets its profit or not. “Activity-based costing” gives impact on specified production and to make this accurate, it is necessary to consider both direct cost and indirect cost. Production depends on different types of resources, and it is the reason for specific cost occurrence of a product (Lizbetin, 2018).

It considers a cause and effect relationship, and whenever it shows that manufacturing cost does not build any relationship and then other drives should be chosen. It has several parts such as “target costing, variable and fixed costing, financial modelling and accounting” (Keinänen and Oksanen, 2017). Target costing is a management price of an upcoming product that depends on market conditions, competition level, on similar products and priority of customers. Fixed and variable cost depends on the product’s nature that means several products, customers needs and labours. In fixed cost, the price of the product does not change concerning its volume, but in variable cost, the price may change (Fitó Bertran et al. 2018).

Local retailers, stakeholders always look upon the manufacturing cost, and they sell it to customers with some profit.  In UKM, manufacturing costs are mainly based on wafer fabrication, and raw wafers cost. Later, dies gathers in sequence for manufacturing process, semiconductor manufacturing process losses much due to non-functional dies for production (Fagerlind et al. 2019).

Product cost

Product cost describes as a cost which is mainly incurred by manufacturing of a product in an organization, and it mainly depends on labour cost, consumable manufacturing components, raw materials, delivery cost and overhead cost. If the quality of product, components cost is very high, then the cost of product will be high, and if delivery of a product is possible, then customers have to pay for product as well as for delivery (Bailey and De Propris, 2018). Direct material costs are mainly raw material cost which UKM is using for making a processor, the cost of direct labour depends on cost of allowance, insurance and benefits which UKM provides to their employees (Areena, 2019).

Manufacturing overhead considers “production house-related cost” that is electric, machinery cost, and cost of indirect materials. Direct materials are those materials which are not considered directly at the time of manufacturing for a product such as tapes, glue, cleaning supplies, oils so on. In an indirect product cost of labours also included cost of security, cost of quality assurance workers, supervisors in UKM factory. As an example, if UKM produces any semiconductor chip, then its raw materials like electronics components are direct material. Labours expenses, insurance and their extra benefits like a car, room rent are labour cost, and other materials like glue, stapler, tep, and logbook are extra costs (Andersen et al. 2019).

Practicality in reducing direct fabrication of Wafer by £23m

Simon Smith, the marketing strategy maker, was engaged to analyze the preparation of SPx512 in detail and also strictly analyze the product cost which the company allocated. He built a committee and the members of the committee will be White from finance to supervising the matter. The team of Mark Spencer, manager of wafer fabrication put a report of cost review in an active way and this will help for significant cost reductions which are very necessary to maintain the profit of the company from a particular product (Esfahbodi et al. 2017). Before going through this, Mark has taken the course of “activity-based costing” to realize the method better and to understand the cost structure and cost drivers. This method can select the non-value-add work to the manufacturing unit and definitely be checked by the authority.

Smith will get the opportunity to deduct the cost of a particular product and necessary improvements in the cost system of the current standard. He felt in applying the current standard cost system which did not properly capture the complexity of UKM’s process of production. Smith also felt the need to analyze the review of ABC and the reduction of the cost of the product named SPx512 which costs a huge financial loss of the company (Galletto, and Barisan, 2019). The cost of the old product and the selling percentage will be analyzed by the committee. The cost of SPx512 was reduced by the company and pleasant news for the customers but it was not much surprising to Smith. £437.50 was the new cost of SPx512 was confirmed by Smith by Sarah’s request to reduce the cost of SPx512 up to £166. Based on ABC, Smith tried to find out the positive results of it (Ghisetti, et al. 2017). The wafer fabrication was a particular area on the manufacturing cost of the area and the executive named Smith clearly calculated that the cost of production of SPx512 was deducted from £3,000/wafer in the year 2019 to 2020 then the actual cost will be reduced to £105.

Reduction of 38 percent in the fabrication of wafer spends to achieve the target of profit. Spencer was asked by Smith to review the area of fabrication that reduces the opportunities to build a plan to reduce wafer fabrication directly (Glaeser, and Omartian, 2019). Two weeks were spent by Spencer and came with a new and exclusive plan which was praised by the authority of the company and Smith also. The team of Spencer found a way to reduce the usage of monitor wafer and that will help a company to get more profit from the market and increase the value of the particular product. Secondly, the producers of wafer handling were reduced for better implementation and growth of UKM, and also the inspections will be better than before and placed for reconstructing the whole system of costing and production. Overall, direct wafer fabrication is practical and plausible in the business strategy of a manufacturing company (Handriani, and Robiyanto, 2018).

Looking at areas other than wafer fabrication by Smith

Simon Smith only focused on wafer fabrication, but he has to focus on other parts, also such as probe access, assembly process and testing. In semiconductor manufacturing, there is much testing from which circuit probing plays a vital role, where special pattern tests are applied. There are several available detections through which employees can get an overview of the wafer test. Simon has to undergo such functional detection for their product through which he could get an overview. Tester part consists of different signals; wafer cable delivers the signal for testing purposes. Wafer probe testing allows UKM to analyze reliability of the model, but Simon does not care about it (Almeida and Cunha, 2017).

In this wafer, there is a “temperature control mechanism” by which employees could understand how much temperature should be given to the wafer. Simon overlooked this function for that many semiconductor devices get burned at high temperatures, and another function is that semiconductor must be allowed in all environments to operate. Another thing is that the semiconductor must not be immune to noise or any electrical signal leakage and the UKM manufacturing department should care about this. In order to make this probe testing process efficient, probes need to perform automated handling and need to activate position control features. Simon needs to investigate whether the probes are perfectly integrated or not and should check whether the non-functional dies are marked or not by an ink (Alami and ElMaraghy, 2020).

Assembly process is also a vital part for manufacturing because in this part each dies gets separated from the wafer, so for that Simon must be taken care of; otherwise, it must be a great fault. Aluminium wire is necessary to connect bonding pads with the leads package, in this part observation needed. As there are many wires and holes on the PCB, hence, it is necessary to look after the wired connection on the semiconductor board, and proper soldering is necessary for that part. Simon should take care of fibre alignment. Testing of the assembled product is a central part because it ensures whether the wires are connected correctly or not and the temperature also. After successful testing, the circuit should be installed on the printed circuit board through which it will install on the computer. In this process, the manufacturer used too many chemical components, so by proper observation that should be used for assembling; otherwise, employees can get affected, and proper cleaning is mandatory.

Pricing advantages of UKM’s competitor such as Top Telecommunicating Plc

In electronics, a semiconductor is a thin and slices material and in this case, the slice is named SPx256 o of UKM and TT256 of Top Telecommunicating. An industry’s ability will be increased by a good percentage per year depending on the manufacturing capability of semiconductor products and as a result in combination with the transitions of wafer size and the improvement in the production of a company (Izberk-Bilgin and Nakata, 2016). Die per wafer of Top Telecomunicating Plc is 33 percent that is better than UKM’s SPx256. The wafer of the product is the same as UKM but Top Telecomunicating Plc was making a huge profit on this product. The forces driven by the transitions of wafer include the increasing die size and numbers of the chip’s function. Obviously, due to respect to global competition TT256 is produced on market competition and manufacturing cost of the product. It is reported that the size of the silicon wafer is growing day by day in a steady way for the last 50 years (Kaleka and Morgan, 2017).

At first, the wafer’s figure is in half-inch or nearly one-inch silica and now the size is reached up to 300 mm in diameter. The growth of the size is based on three major trends that are following the first point is the chip size is growing per edition. Secondly, the demand for the chip is the main cause of growing the size of the wafer. The product of  UKM is based on some old input in the comparison of TT256 on the basis of the cost of the product. The increasing tool cost is responsible for the lower cost per chip. This is the main cause of the purchasing larger size of the wafer. Wafer size and die size are responsible for a better number of dies per wafer and helps to calculate the maximum dice per wafer (Karaca, and Özen, 2017). It is unfortunate that increasing-price and amount of product cause that the function may not work as per the wafer calculations. The issues which are raised by the increment of 38 percent die/wafer are increasing clearly economical rather than technical. Wafer size is increased effectively only by the non-litho costs because the wafer size is bigger than before. UKM and Top Telecommunicating are the two competitors in the same manufacturing business company and there was a competition of producing larger wafers that can attract the market and the funding of the government.

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